In February 2004, future Federal Reserve Chairman Ben Bernanke penned a paper titled "The Great Moderation," a celebration of a sunny new era of economic stability. Deregulation and "increased depth and sophistication of financial markets" were in part responsible for the decline in economic volatility, he wrote.

It's too bad that Bernanke wasn't with me at the Elephants Deli on Kruse Way in 2005. I was meeting a mortgage broker on that sun-drenched afternoon. The housing market was running flat-out and the mortgage industry was awash in money. But he was miserable.

The broker talked in apocalyptic tones about frighteningly sloppy lending that had become pervasive. He told me about a new kind of wink-wink, nudge-nudge home loan in which the lender made no effort to verify the applicant's purported income.

Analysis

He laid it all out -- the whole daisy chain of the modern mortgage industry that had convinced itself, and the outside world, that it could spin garbage into gold.

I didn't get it. I failed to grasp the destructive potential of the industry's new go-go mentality. And I blithely walked away.

I offer this anecdote not only as mea culpa, but also to illustrate one of the central truths of the just-issued congressional report from the Financial Crisis Inquiry Commission. The financial meltdown that has ruined so many lives was not caused by an uncontrollable, unanticipated convergence of events. This was a largely predictable and avoidable crisis caused by the breakdown of traditional practices and discipline in the financial industry.

View full sizeThe Associated Press/fileFederal Reserve Chairman Ben Bernanke (left) and former Federal Reserve Chairman Alan Greenspan participate in a discussion in November 2010. Bernanke defended the Fed's aid the economy, rejecting concerns that it would spur runaway inflation.

Had Bernanke or his predecessor, Alan Greenspan, bothered to ask, even rank-and-file brokers here in Portland would have given them an earful about the looming catastrophe.

The commission's 600-plus page report spares no one. The mortgage industry, the big banks, Wall Street, the ratings agencies, Fannie Mae and Freddie Mac and the regulators all take a pounding.

"The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public," the majority report states in its executive summary.

We're now a poorer country, with diminished expectations to match our diminished buying power. But have we learned anything? Are we in a better position to avoid the next economic bubble?

The answers to those questions are distressingly unclear.

Joe Boyer is a 28-year veteran of the FBI. The savings and loan crisis occupied much of his early years. Radical deregulation, instituted in hopes of saving the faltering S&L sector, allowed thrifts to diversify into all sorts of wild schemes, some of them fraudulent.

Now, as he nears retirement, he's combating a new generation of mortgage fraud loosed by the housing boom and the financial industry's get-rich-quick mentality.

"The common denominator is deregulation," Boyer said. "I'm chuckling only in the irony of it. It's unbelievable that we could be so stupid twice."

The commission wryly notes the anti-regulation sentiment that reigned in the 1990s and early in the 2000s, quoting Greenspan himself. The "Maestro" believed, as did his many followers, that the market was so efficient and so rational that stodgy government regulators would be rendered superfluous.

Of course, regulation, even strong, consistent regulation, was not enough in the face of the economic calamity of the past four years.

Oregon regulators told its small flock of state-chartered community banks as early as 2004 that it was concerned about their growing exposure to the housing industry. Community banks made relatively few home mortgage loans. But they lent heavily to homebuilders and land developers, to the point they had 20 percent, even 30 percent or more of their loan portfolio exposed to housing.

Jacob Mundaden, acting program manager for banks and trust companies at the Oregon Division of Finance and Corporate Securities, said it was easy to be reassured. The banks were making big money, very few of the loans were going bad and most had been conservatively underwritten.

That all changed, of course, when the economy crashed. Six Oregon banks failed largely because of failed construction loans. Others survived only because they sold large parts of themselves to outside investors at bargain prices.

"The fact of the matter is maybe we got a little complacent," Mundaden said. Today, the state regulators have put new emphasis on "forward-looking supervision," to try to help banks identify and avoid future problems.

The plight of the community banks outraged David Tatman, head of the Oregon Division of Finance and Corporate Securities. The big banks that were integrally involved in creating, funding and spreading toxic mortgages throughout the economy turned to the U.S. Treasury for rescue when times got tough.

Community banks had no such benefactor. When they ran into trouble, federal and regulators shut them down.

"It frustrated me to no end that big banks were bailed out but small banks were left to flounder," he said. "That was very painful for me."

Ray Davis, CEO of Umpqua Bank, the largest bank based in Oregon, said the commission's report is on the money in ascribing widespread blame. The local banks, Umpqua included, saw the huge money available in the booming housing sector and couldn't help themselves.

"Everybody has responsibility," he said. "It was the big banks' excesses and abuses, the community banks' greed and over-leverage, the regulators ... ."

In post-crash Oregon, there is much less to regulate. The number of individual mortgage brokers and lenders licensed with the state has gone from 13,112 in 2006 to 3,771 currently.

Homeowners also blamed

The commission's report does not spare homeowners. The mortgage disaster would have been a shadow of its actual self if thousands of homeowners had not used their home as an ATM.

As the report points out, from 2001 to 2007, national mortgage debt almost doubled, and the amount of mortgage debt per household rose more than 63 percent from $91,500 to $149,900. even while wages were flat.

Locally, bankruptcy attorneys found themselves dealing with clients who had two, three, even four mortgages on their homes.

The whole economic crisis is a nonstarter without those two key players: the homeowner who wants the loan regardless of whether he can afford it and the banker who doesn't care about the borrower's ability to pay, said Mark Fovinci, a principal at Ferguson Wellman Capital Management in Portland. "They didn't care if they made a loan to their pet rock, they just wanted the fee," Fovinci said.

Mick Elfers, of Irvington Capital in Portland, says Americans need to brace themselves for a future of more booms and busts.

The country has made its choice to free the financial industry in the name of economic growth. Elfers says there's no political will to radically intervene in the financial industry, even after a disaster as sweeping as the Great Recession.

But a "financialized" economy, to use Elfers' word, is more prone to booms and busts.

"We've created a more complicated, dangerous system that the average person is going to find much more difficult to survive," he said. "How do you deal with this risk? Wall Street doesn't know how to tame risk, other than to make as much money as possible in the good times. But where does that leave the rest of us?"